Stuck on Step 2- What is the best way to get set up for success?

Question

I'm stuck on WHERE to get started. I've got a good grasp of the big picture of real estate, I've been a part of various real estate groups as well as read/listened to many books/audiobooks on real estate.

I've been an international teacher for the past 6 years, so I've lived in several different countries, but not in the US. My last gig was in Dubai where I am at the moment.

My question is WHERE do I choose to invest?

The pros and cons of 3 cities:

Richmond, Virginia.
Pros: It's the town where I grew up, went to high school, college/university and where I visit when I return to the states because my parents still live there. This is a pro because I have a network of friends, a familiarity of the community, and the city. It's in the US, I'm a US citizen and the legalities are more straightforward. If I choose to invest here, I'll need to get a job to support myself while I get through the "starting out" phase.
Cons: Income tax, my parents are moving to Tampa, Florida for retirement next year. I do not currently reside here.

Tampa, FloridaPros: My family (2 brothers, nieces and nephews, and my parents) will be there and if I'm living in the US, I'd like to live near them. Could be a fresh start. Could be good for vacationers rentals. It's in the US, I'm a US citizen and the legalities are more straightforward. No Income Tax. If I choose to invest here, I'll need to get a job to support myself while I get through the "starting out" phase.Cons: I'm unfamiliar with the city having never lived there. I don't have a network of people I know outside of family. I do not currently reside here.

Dubai, UAEPros: It's where I'd prefer to invest because I'm currently in the city, I'm a member of a cycling team, I've got a current network of day-to-day friends, athletic clubs I'm a part of. I have a pilot boyfriend who I live with and financially supports me which enables me to focus on important things instead of going to work. Dubai is Tax free. I'm semi-familiar with the city as far as socio-economic areas. My current strategy would be to lease and sublet because I do have money to be able to do this on my own, or to buddy up with others to buy a property. Cons: The market is not affordable for the amount of money I have, fees for everything are so high. Because I don't have a job, I can't get a mortgage. I do not have a residence Visa with prevents me from doing legal things. LTV is 25% for first mortgage and 35% for second mortgage. As a teacher making $4,000/mo, my salary wasn't even high enough to qualify for a mortgage.

General questions:
How important is it to be in proximity of the first investment property?
Is it wise to do an investment property for the first time with partners? Is 3 other partners too many to start out with?
Is the Tax status of each city something to be concerned with?
What other advice/thoughts do you have?

I feel frustrated because I feel that if I were in the US, I could buy a property deal outright with cash and a business plan that it could cashflow and pay its own mortgage. But if I move to the US, I'll have to start paying taxes and get a job. I'm driving myself crazy going back and forth on investment decisions between the US and Dubai.

Colin G Murphy · Answer

Hi @Kat Rich

That´s an interesting situation you have there.

I live in Spain but invest in Tampa Florida with a local partner I´ve been in business with for many years. It´s a great place to start a rental portfolio and/or flipping business. I would avoid vacation rentals and stick with long term rentals though - the former is much more fickle and subject to higher taxes, higher management fees and higher maintenance costs. You really need to know your stuff and have some decent volume to make a vacation rental portfolio work.

On the other hand, regular SRFs rented to families on 1 year leases are much more stable and you can build scale as quickly or slowly as you like. For example, I like buying single family homes in Pasco County with ARVs of $80,000 - $100,000 which rent for $900 - $1,100 per month. Not too expensive, solid cashflow and easy to rent.

I´m also familiar with Dubai and the crazy ups and downs it has had over the past 10 years. Obviously Florida had it´s fair share too, but Dubai is way more speculative and much more vulnerable to external shocks. The only people that seem to make money there are builders, banks and investors who time their flips perfectly. It isn´t a market for buy and hold foreigners (especially as prices are high and returns low).

Other QuestionsThree partners does strike me as a lot on a single purchase, but I´m sure plenty of people have done it. Just make sure you have a signed agreement (doesn´t have to be too formal) outlining what each persons roles are and how they contribute to funding and profit share. Property taxes are certainly important and you need to include them (plus insurance, maintenance allowance, vacancy allowance and possibly management fees into your calculations). Income taxes are a factor as well - the US isn´t a tax haven like Dubai, but there are plenty of deductions available, including depreciation.

Would one of your family members in Tampa be interested in going into business with you? It is certainly possible for you to monitor the MLS, Auction.com, Zillow etc from Dubai, crunch the numbers, perform online permit searches and select shortlists for a local partner to visit. That might enable you to dip your toe in the water without committing to a big move away from your job just yet.

Good luck and keep us posted. Happy to help further if I can.

Colin G Murphy · Answer

Hi @Kat Rich

You´re very welcome. I think it´s entirely possible to invest in Tampa from Dubai as long as you have people you can trust on the ground (i.e. your brother) and as long as you train yourself how to make use of all the online due diligence information available (tax records, permit checks, public record checks, local comps etc). If/when you put something under contract make sure you have a decent inspection period and get a qualified inspector to check it out. If you´re working with contractors you also need to do your due diligence on them (there is a mountain of information on BP about this aspect of investing).

Finally, if your brother is going to manage the property bear in mind that he either needs to be licensed or he needs to be part owner.

Kat Rich · Answer

@Colin Murphy, Thanks for your response. That's good information to stay away from vacation rentals. You're right, it would be more maintenance and upkeep....ok.

What do you think about investing in Tampa, per say, from the location of Dubai as a first time deal?

I spoke to one of my brothers there who is also interested in real estate investing but has not the finances to do it himself and he says he can do the property management aspect.

@Bill Florence - Thanks for the advice about investing far away, I agree, I would like to be near the property. Plus, I would feel more comfortable investing in an area which I am familiar with.

Chad G. · Answer

I am not sure what your end goal is, but if you are not looking for a job (e.g. flipping, wholesaling) or a business (e.g. property management, landlording), you may want to considering looking into Turnkey providers. Their purpose is to manage the investments for you (of course you still need to verify their performance!), which should address your concern about investing in another city.

Bill Florence · Answer

Hey Kat,

Based on my experience, be physically close to your investment(s) and in an area you know very well and are comfortable in especially if you are starting out.

Barbara G. · Answer

The boyfriend in the mix is a big factor on where you want to live decision

If you did not have the boyfriend to contend with I would just go to Florida to invest and be with your family and they would be your feet on the ground for you

I think a JV with the one partner or even 2 would be very good for a first deal You are not in it on your own and you have opinions to share and work to spread around

Stuck on Step 2- What is the best way to get set up for success?

Stuck on Step 2- What is the best way to get set up for success?

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